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HMRC internal manual

Guidance on Real Estate Investment Trusts

From
HM Revenue & Customs
Updated
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Conditions and tests: Tax-exempt business conditions: indirectly held property

This page looks at how indirectly held property is treated for the purposes of two of the conditions that must be met for the property rental business to be a tax-exempt business being those in respect of the number of properties (Tax-exempt business Condition 1 - see GREIT02025) and the relative values of the properties involved in that business (Tax-exempt business Condition 2 - see GREIT02035). For more background on treatment of interests in entities, see GREIT09010 onwards.

Partnerships

A UK-REIT’s share of a property owned via a partnership will count as property involved in the property rental business, but is unlikely to count as a ‘single property’ for the purposes of Tax-exempt business Conditions 1 and 2. This is because a single property is a unit capable of being let out: it is hard to imagine how a partner in a partnership could let out their interest held via the partnership separate from the interests of the other partners.

Joint ventures

Where there is a Joint Venture Look-Through notice in place (see GREIT13015), the properties held by the joint venture company are taken into account in the tax-exempt business conditions in the same way as property owned by a company that is a member of a Group REIT. Where there is no Joint Venture Look-Through notice in place, the legal nature of the vehicle through which the venture is carried out will determine the outcome.

Authorised investment funds (AIFs)

For the purposes of Tax-exempt business Conditions 1 and 2, no account is taken of the underlying assets, regardless of the level of ownership or nature of the activities. This applies where the AIF takes the form of an open-ended investment company (OEIC) or of a unit trust.

Non-resident unit trusts

There is no single answer that applies to all non-resident unit trusts, and not even one for all unit trusts established in a particular location. The result depends on the nature of the deed establishing the trust as well as the laws of the jurisdiction under which the trust is set up.

Where the trust is treated as though it is transparent for income purposes, the property held via the unit trust is treated in the same way as partnership property (see above). Where the trust is treated as opaque, the property is treated in the same way as property held via a company that is not a member of a Group REIT.

Companies

If the company is not a 75% / effective 51% subsidiary, then property owned via a company is not generally taken into account for Tax-exempt business Conditions 1 and 2. The only exception to this is if a joint venture look-through notice has been given in respect of the company (see GREIT13010 for the conditions for giving such a notice).

A company with a 75% / effective 51% subsidiary may elect to join the regime as a single company. In this case, no account is taken of the property owned by the subsidiary for the purposes of Tax-exempt business Conditions 1 and 2.

Where a company is a 75% / effective 51% subsidiary of a Group REIT, the property by the subsidiary is taken into account for the purposes of Tax-exempt business Conditions 1 and 2.